Chipotle announces price hike

DENVER – Consumers should expect to pay more for a burrito at Chipotle Mexican Grill starting next year. The chain said it will raise prices for its menu items to offset higher costs associated with removing bioengineered ingredients from its food.

“We are not going to make a decision today on pricing, but I think that it is probably in a mid-single digit range,” said Monty Moran, co-CEO, during an Oct. 17 call with analysts to discuss third-quarter earnings. “Whether that is a 3 percent, 4 percent, 5 percent, what it will depend on is what happens with general ingredient inflation between now and then. And then what it costs us to remove GMOs from the rest our ingredients. Once we have all that information at hand, we will be able to do a better job at figuring out what the price increase might be.”

Higher prices for California avocados, salsa ingredients and chicken have pinched profits for Chipotle, but the chain said it also pays more for oil as it converts from soy oil to non-bioengineered sunflower and rice bran oils. The company said a price increase around midyear is a “reasonable assumption.”

“With expectations of making additional investments in moving to non-GMO ingredients for all of our food by sometime next year, we expect to raise prices sometime in 2014,” said Jack Hartung, CFO.

The company wrapped up its third quarter with a 10 percent increase in net income to $83,379,000, equal to $2.70 per share, compared with $72,300,000, or $2.28 per share, during the same prior-year period. Revenue for the quarter was $826,907,000, up 18 percent from $700,528,000 during the same quarter a year before.

Contributing to strong sales was Chipotle’s expansion of its vegan Sofritas option, organic tofu that is braised with chipotle peppers, roasted poblanos, herbs and spices. During the quarter, the company added Sofritas to West Coast markets. Beginning this month, restaurants in Chicago, Baltimore, Philadelphia, Richmond and Washington, DC, will include the option. Sofritas, which account for more than 4 percent of sales in restaurants where it is offered, will be carried in more than 650 locations, or about 40 percent of Chipotle’s restaurants, by year’s end.

Steve Ells, chairman and co-CEO, said about half of Chipotle’s customers who order Sofritas are vegans or vegetarians.

“Our customers, including vegans, vegetarians and meat eaters alike, really seem to enjoy its complex and bold flavors,” Ells said. “In developing Sofritas, our aim was to create a menu item that would offer another delicious option for our vegan and vegetarian customers that would also appeal to meat eaters who might want an occasional meat-free option and that would fit into our service line and not burden our operations or throughput.”

In another meat-free menu swap, company recently rolled out the removal of bacon from its pinto beans.
“From the beginning, our pinto bean recipe included a small amount of bacon,” Ells said. “In testing some different recipes for pinto beans, we have determined that the bacon was not adding to the flavor in a meaningful way and that removing the bacon would not negatively impact the taste of our pinto beans. In fact, we notice that the smoky background notes come mainly from the addition of chipotle peppers and not the bacon.”

Chipotle has ramped up efforts to raise awareness about the quality and origin of its ingredients. In March it became the first national restaurant company to voluntarily disclose the presence of bioengineered ingredients in its restaurants. Recent marketing efforts have focused on where food comes from and how it is prepared.

The company said raising prices to adjust for ingredient inflation may represent another marketing opportunity as well.

“We are not aware of any other restaurant company anywhere near our size that is even attempting to do this,” Moran said. “And so to actually accomplish it will be pretty exciting, and we would like to time that excitement around with the price increase.”

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